What circumstances warrant such a "prepayment" of the existing bond? Why would the issuer wish to repay the bond prior to its original maturity date? What types of "callable bonds" have you issued? What are your thoughts about the benefits and detriments of callable bonds?
What circumstances warrant such a "prepayment" of the existing bond? Why would the issuer wish to repay the bond prior to its original maturity date? What types of "callable bonds" have you issued? What are your thoughts about the benefits and detriments of callable bonds?
Related questions
Masters Corp. issues two bonds with 18-year maturities. Both bonds are callable at $1,060. The first bond is issued at a deep discount with a coupon rate of 8% to yield 14.9%. The second bond is issued at par value with a coupon rate of 16.50%.
a. What is the yield to maturity of the par bond? (Round your answer to 2 decimal places.)
Yield to maturity %
b. If you expect rates to fall substantially in the next two years, which bond would you prefer to hold?
| Bond with a coupon rate 16.50% | |
| Bond with a coupon rate 8% |
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